Court allows Ukrzaliznystia to not assume liabilities of Donetska Railway

Supreme Court of Ukraine ruled on Feb. 8 that railway monopoly Ukrzaliznystia (UZ, RAILUA) is not the assignee for the obligations of Donetska Railway, railway company which services the partially occupied Donetsk and Luhansk oblasts of Ukraine. The court confirmed that UZ should not be responsible for the failure of Donetska Railway to service its debt obligations before it gains access to all the assets of Donetska located on the occupied territory, takes stock and evaluates all of the assets, the UZ press service reported on Feb. 8. The company estimates the total debt of Donetska Railway at UAH 4.4 bln, which is close to 19% of all domestic liabilities of UZ. Ukrzaliznystia also reported that the Supreme Court’s ruling will allow it appeal against other courts’ decisions and claim the return of about UAH 1 bln in “groundlessly” collected debt.

Ukrzaliznystia used to be a part of Infrastructure Ministry responsible for managing six regional railway monopolies. With the occupation of part of Donetsk and Luhansk oblasts in mid-2014, Donetksa Railway, one of the six copanies, lost access to large part of its assets. The six regional monopolies (including a part of Donetska Railway) were merged into the single joint-stock company Ukrainian Railway (Ukrzaliznystia) in late 2015. The new company inherited all the assets and liabilities of the five regional monopolies and part of Donetska Railway.

Alexander Paraschiy: The news looks positive as it promises that UZ won’t spend any money on Donetska debt servicing unless the occupation of the Donbas region ends. At the same time, the court’s ruling does not change the relations of Ukrzaliznystia with its Eurobond holders, who have already allowed the company to avoid paying/restructuring the debts of Donetska Railway. UZ’s intention to claim back about UAH 1 bln of repaid liabilities of Donetska Railway looks encouraging, but we do not believe the company will succeed in it.